[Congressional Record Volume 167, Number 187 (Monday, October 25, 2021)]
[House]
[Pages H5848-H5850]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FINANCIAL EXPLOITATION PREVENTION ACT OF 2021
Ms. WATERS. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 2265) to amend the Investment Company Act of 1940 to
postpone the date of payment or satisfaction upon redemption of certain
securities in the case of the financial exploitation of specified
adults, and for other purposes, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 2265
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Financial Exploitation
Prevention Act of 2021''.
SEC. 2. REDEMPTION OF CERTAIN SECURITIES POSTPONED.
(a) In General.--Section 22 of the Investment Company Act
of 1940 (15 U.S.C. 80a-22) is amended by adding at the end
the following:
``(h) Requirements With Respect to Non-institutional Direct
At-fund Accounts.--
``(1) Election.--
``(A) In general.--A registered open-end investment company
and a transfer agent described under paragraph (2) may elect
to comply with the requirements under paragraph (2) and
subsection (i) by notifying the Commission of such election.
``(B) Effect of election.--Paragraph (2) and subsection (i)
shall only apply to a registered open-end investment company
and a transfer agent that have made the election under
subparagraph (A).
``(2) Requirements.--In the case of a customer who is a
holder of a non-institutional account held directly with a
registered open-end investment company and serviced by a
transfer agent (a `direct-at-fund account'), the company and
transfer agent shall--
``(A) request from such customer the name and contact
information of at least one individual who--
``(i) is at the time of such request an adult; and
``(ii) may be contacted with respect to such account;
``(B) document and retain the information received pursuant
to subparagraph (A); and
``(C) disclose to such customer in writing (including
through electronic delivery) that such company or transfer
agent may contact an individual specified pursuant to
subparagraph (A) with respect to the account of such customer
to--
``(i) address possible financial exploitation of such
customer;
``(ii) confirm the contact information or health status of
the customer; or
``(iii) identify any legal guardian, executor, trustee, or
holder of a power of attorney of the customer.
``(i) Redemption of Certain Securities Postponed.--
``(1) In general.--Notwithstanding subsection (e), a
registered open-end investment company or a transfer agent
acting on behalf of such company may postpone the date of
payment or satisfaction upon redemption of any redeemable
security in accordance with its terms for more than seven
days after the tender of such security to such company or its
agent designated for that purpose for redemption if such
company or agent reasonably believes that--
``(A) the redemption is requested by a security holder who
is a specified adult; and
``(B) financial exploitation has occurred, is occurring, or
has been attempted with respect to such redemption.
[[Page H5849]]
``(2) Duration.--
``(A) In general.--Except as provided in subparagraphs (B)
and (C), a registered open-end investment company or a
transfer agent acting on behalf of such company may postpone
the date of payment or satisfaction upon redemption of a
redeemable security under paragraph (1) for a period of not
more than 15 business days.
``(B) Extension upon determination of exploitation.--The
period described in subparagraph (A) may be extended by an
additional 10 business days if the registered open-end
investment company or a transfer agent acting on behalf of
such company--
``(i) reasonably believes that--
``(I) the redemption is requested by a security holder who
is a specified adult; and
``(II) financial exploitation has occurred, is occurring,
or has been attempted with respect to such redemption;
``(ii) subject to subparagraph (D), not later than 2 days
after making a determination under clause (i), notifies the
individuals specified by such security holder under
subsection (h)(2)(A) in writing (including through electronic
delivery) of the extension of the period described in
subparagraph (A) under this subparagraph and the reason for
such extension;
``(iii) initiates an internal review of the facts and
circumstances relating to the determination under clause (i);
``(iv) holds amounts related to the delayed payment or
satisfaction upon redemption of the redeemable security in a
demand deposit account; and
``(v) documents and retains records related to carrying out
clause (iv) and includes such records in the first required
account statement of the security holder provided after the
date on which the determination is made under clause (i).
``(C) Extension by government.--A State regulator,
administrative agency of competent jurisdiction, or court of
competent jurisdiction may extend the period described in
subparagraph (A).
``(D) Notification.--
``(i) Exception.--Subparagraph (B)(ii) shall not apply if a
registered open-end investment company or transfer agent
acting on behalf of such company reasonably believes that an
individual required to be notified under such subparagraph
is, has been, or will subject the security holder who
identified such individual under subsection (h)(2)(A) to
financial exploitation.
``(ii) Reasonable efforts.--An open-end investment company
or transfer agent acting on behalf of such company shall be
considered in compliance with subparagraph (B)(ii) if such
company or transfer agent makes a reasonable effort to
contact the individuals specified by a security holder under
subsection (h)(2)(A).
``(E) Internal procedures.--An open-end investment company
or transfer agent acting on behalf of such company shall
establish procedures to carry out the requirements under this
subsection, including procedures--
``(i) related to the identification and reporting of
matters related to the financial exploitation of specified
adults;
``(ii) to determine whether to release or reinvest delayed
redemption proceeds, taking into account the facts and
circumstances of each case, should the internal review under
subparagraph (B)(iii) support the reasonable belief described
in subparagraph (B)(i);
``(iii) identifying each employee of the company or
transfer agent with authority to establish, extend, or
terminate a period described in paragraph (1) or subparagraph
(A);
``(iv) in the case of a transfer agent, that are reasonably
designed to ensure that the employees of such transfer agent
comply with this subsection; and
``(v) in the case of an open-end investment company,
establishing periodic reporting requirements under which a
transfer agent acting on behalf of such company shall notify
such company of--
``(I) each extension under subparagraph (B) authorized by
such transfer agent;
``(II) each finding by the transfer agent under
subparagraph (B)(i);
``(III) each notification under subparagraph (B)(ii)
carried out by such transfer agent; and
``(IV) the results of each internal review initiated by the
transfer agent under subparagraph (B)(iii).
``(F) Information included in certain statements.--An open-
end investment company shall include in each prospectus or
statement of additional information a notification that the
company or transfer agent acting on behalf of such company
may postpone redemption of certain securities under this
subsection.
``(G) Record retention.--An open-end investment company or
transfer agent acting on behalf of such company shall--
``(i) document and retain records of--
``(I) each postponement of redemption under subparagraph
(A), (B), and (C);
``(II) each finding under subparagraph (B)(i);
``(III) the name and position of each employee described in
subparagraph (E)(iii);
``(IV) each notification carried out under subparagraph
(B)(ii); and
``(V) the results of each internal review initiated under
subparagraph (B)(iii); and
``(ii) make such records available to the Commission at the
request of the Commission.
``(3) Specified adult defined.--In this subsection, the
term `specified adult' means--
``(A) an individual age 65 or older; or
``(B) an individual age 18 or older who a registered open-
end investment company or a transfer agent acting on behalf
of such company reasonably believes has a mental or physical
impairment that renders the individual unable to protect the
individual's own interests.''.
(b) Recommendations.--
(1) In general.--Not later than 1 year after the date of
the enactment of this section, the Securities and Exchange
Commission, in consultation with the entities specified in
paragraph (2), shall submit to Congress a report that
includes recommendations regarding the regulatory and
legislative changes necessary to address the financial
exploitation of security holders who are specified adults (as
defined in subsection (i)(3) of section 22 of the Investment
Company Act of 1940 (15 U.S.C. 80a-22), as added by this
section).
(2) Consultation.--The entities specified in this paragraph
are as follows:
(A) The Commodity Futures Trading Commission.
(B) The Director of the Bureau of Consumer Financial
Protection.
(C) The Financial Industry Regulatory Authority.
(D) The North American Securities Administrators
Association.
(E) The Board of Governors of the Federal Reserve System.
(F) The Comptroller of the Currency.
(G) The Federal Deposit Insurance Corporation.
SEC. 3. DETERMINATION OF BUDGETARY EFFECTS.
The budgetary effects of this Act, for the purpose of
complying with the Statutory Pay-As-You-Go Act of 2010, shall
be determined by reference to the latest statement titled
``Budgetary Effects of PAYGO Legislation'' for this Act,
submitted for printing in the Congressional Record by the
Chairman of the House Budget Committee, provided that such
statement has been submitted prior to the vote on passage.
The SPEAKER pro tempore. Pursuant to the rule, the gentlewoman from
California (Ms. Waters) and the gentlewoman from Missouri (Mrs. Wagner)
each will control 20 minutes.
The Chair recognizes the gentlewoman from California.
General Leave
Ms. WATERS. Mr. Speaker, I ask unanimous consent that all Members may
have 5 legislative days within which to revise and extend their remarks
on this legislation and insert extraneous material thereon.
The SPEAKER pro tempore. Is there objection to the request of the
gentlewoman from California?
There was no objection.
Ms. WATERS. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise in support of H.R. 2265, the Financial
Exploitation Prevention Act of 2021, sponsored by the gentlewoman from
Missouri (Mrs. Wagner).
It is not a surprise that adults over the age of 65 are sometimes the
targets for financial exploitation and have become victims of financial
crimes more than any other demographic. Just last week, in its annual
report on elder fraud and abuse, the Department of Justice reported
that in 2020 alone, seniors suffered over $1 billion in financial
losses due to fraud.
Unlike other adults, seniors are often dependent on their savings to
support them in retirement, making any fraud that much harder to
recover from. Brokers and investment managers, who often stand in as
the stewards of the savings of seniors, are in a unique position to
protect elders from financial crimes.
In 2018, the Securities and Exchange Commission released a policy
letter, called a no-action letter, stating that the Commission would
not take an enforcement action against the agents of an investment
company, including mutual funds, if the person paused a payment or
redemption based on the suspicion of financial exploitation. This pause
on cashing out the savings of a senior can provide invaluable time to
ensure that the redemption is consistent with the will of the senior.
H.R. 2265 would codify this SEC letter. It would also make two
further changes to describe how a mutual fund adviser can establish the
process at each fund to protect seniors.
I thank Mrs. Wagner for working with my staff to craft the language
in this bill. This is a helpful piece of legislation that will provide
one more tool to market participants to protect investors and, in
particular, our Nation's retirees.
I urge Members to support H.R. 2265, and I reserve the balance of my
time.
Mrs. WAGNER. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise in support of my bill, H.R. 2265, the Financial
Exploitation Prevention Act, a bipartisan bill
[[Page H5850]]
that will help us combat the financial exploitation of seniors and
other vulnerable adults.
I thank Congressman McHenry and Chairwoman Waters for supporting this
important legislation.
Financial exploitation of seniors and other vulnerable adults is a
serious and growing problem.
The number of Americans ages 65 and older is projected to nearly
double, from 52 million in 2018 to 95 million by 2060. This represents
an increase from 16 to 23 percent of the U.S. population being 65 years
old and older.
Right now, approximately 44 percent of households headed by a baby
boomer and 30 percent of silent generation households own mutual funds.
As more investors age into retirement, the risk of financial
exploitation for elderly households only increases. Roughly one in five
senior investors are victimized by financial fraud, and those investors
lose an estimated $2.9 billion annually in reported cases and,
unfortunately, some estimates indicate that only 1 in 44 cases of
financial abuse is ever reported.
{time} 1730
My bill proposes a solution to fight elder abuse in the context of
mutual funds.
Since some mutual fund shareholder accounts are held directly with a
mutual fund and serviced by the fund's transfer agent, or ``direct-at-
fund'' accounts as they are known, the transfer agent is typically
responsible for opening and servicing the accounts, maintaining account
records, and serving as the fund's point of contact with those
shareholders.
Under current law, when a fund's transfer agent suspects financial
exploitation in a direct-at-fund account, it cannot lawfully delay the
disbursement of redemption proceeds while an investigation occurs.
My legislation codifies a SEC-issued no-action letter from 2018 that
permits a mutual fund and its transfer agents to delay the redemption
period of a security if it is reasonably believed that a request was
made by exploiting seniors or other vulnerable adults.
This will provide our potentially vulnerable investors with an
important layer of investor protection to help make sure that they
receive the hard-earned savings that they have built up over the years.
Additionally, and importantly, my bill also requires the SEC to
report to Congress on additional potential legislative solutions on how
to further combat financial exploitation of seniors and vulnerable
adults.
This legislation, Mr. Speaker, is needed to provide certainty to
protect our seniors, and I strongly urge my colleagues to support the
Financial Exploitation Prevention Act.
I am grateful to the chairwoman and to the ranking member and all of
the committee that has worked on this in such a bipartisan fashion, Mr.
Speaker, and I reserve the balance of my time.
Ms. WATERS. Mr. Speaker, I have no further Democratic speakers, and I
reserve the balance of my time.
Mrs. WAGNER. Mr. Speaker, I again, thank the chairwoman and her team
for making this very important piece of legislation that is so
important to our seniors and to our vulnerable adults happen.
Again, in 2018, the SEC put this together as something we should be
strongly looking at as we move forward. I am pleased we were able to
bring it to the floor today in a bipartisan fashion.
I urge all of my colleagues to support my bill, H.R. 2265, the
Financial Exploitation Act of 2021, and I yield back the balance of my
time.
Ms. WATERS. Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentlewoman from California (Ms. Waters) that the House suspend the
rules and pass the bill, H.R. 2265, as amended.
The question was taken; and (two-thirds being in the affirmative) the
rules were suspended and the bill, as amended, was passed.
A motion to reconsider was laid on the table.
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